LONDON (Reuters) - A global accounting body has dismissed calls for root and branch reform of its rules for defined benefit pension schemes, saying they must reflect risks to investors.
The International Accounting Standards Board (IASB) has come under fire from critics who say its rules unfairly inflate pension deficits in defined benefit schemes because liabilities are measured according to bond yields, which have fallen to record lows for a prolonged period.
The sheer size of deficits in some company-defined benefit schemes has become a stumbling block in mergers and company rescues.
“With interest rates being so low for so long, some are reopening an old debate about the measurement of the pension liability,” IASB Chairman Hans Hoogervorst said in a speech in the Netherlands on Thursday.
IASB accounting standards are used in over 100 countries, including the European Union, but not the United States.
Critics of the IASB rules say many pension funds invest in shares, which historically have given higher returns than bonds and therefore fewer assets should be needed to cover liabilities.
Hoogervorst said that while its accounting rules for pension schemes were a “bit out of date” and are being looked at by the board, there are no grounds for radical changes.
Accounting rules provide information for investors in companies and must therefore include risks, he said. Booking a profit from investments in shares before they are earned would not be prudent.
“For these reasons the IASB rejects calls to fundamentally change pension accounting to eliminate or reduce pension deficits,” Hoogervorst said.
It is looking at how its rules could cater better for the increased use of “hybrid” schemes which define pension liabilities more flexibly.
Many defined benefit schemes have been closed to employees joining a company and replaced with schemes which pay out according to how investments perform in financial markets, rather than based on a commitment to pay a certain amount.
Reporting by Huw Jones; Editing by Susan Fenton